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who holds a chair professorship at the Fuqua School of Business
at Duke University and a joint appointment at the Duke Law
School, and Gilbert E. Matthews of Bear, Stearns & Co.
Professor Bradley described the Efficient Market Hypothesis,
which provides that, in an efficient capital market, security
prices constitute unbiased estimates of the value of the
underlying assets. More specifically, security prices are
unbiased estimates of the value of the future cash-flows that
will accrue to the holder of that security, and the ultimate
source of these cash-flows is the productivity of the underlying
assets. Professor Bradley determined that the units were
efficiently valued by the market as evidenced by the relationship
between the pricing of the units and the Douglas fir stumpage
prices. He noted that the $4.5 million decrease in the aggregate
market value of petitioner’s stock on the exdividend date15
confirmed the efficiency of the market’s valuation of the
Partnership.16 Professor Bradley concluded that the market price
15"Exdividend" refers to the situation where a dividend has
been declared but not paid. When stock is sold exdividend, the
seller, and not the buyer, has the right to the next dividend.
16Professor Bradley attributed the difference between the
observed $4.5 million decrease and the $13.8 million aggregate
value of the partnership units to the "wealth effect of
spinoffs". According to Professor Bradley, there are two
explanations for this effect. First, a spinoff may lead to
better valuation of each entity, because the two businesses may
be followed by different analysts and may attract different
investors. In addition, transaction costs may provide incentives
for sellers to sell their stock before the exdividend date and
(continued...)
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